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Debt Relief or Debt Consolidation: Which Solution is Right for Me?

Debt doesn’t have to last forever. From personal loans, to third-party pros, to credit cards, find out which debt solution is best for you and your scenario.

C. Tarantino

January 30, 2022

If you’re dealing with medical, credit card, or some other kind of unsecured debt, you’re not alone. According to the Urban Institute, 26% of Americans have some kind of debt in collections, including medical, student, retail, and credit card debt.

To work their way out of this debt, thousands of Americans turn to debt consolidation and debt relief solutions every year. Both solutions are tools to help people simplify or minimize their debt problem, but before you sign up for any debt program, let us help you weigh the pros and cons of both options so you can choose the right debt solution for you.

What is Debt Consolidation?

Debt consolidation is a debt relief strategy where a person takes out a new debt (usually in the form of a personal loan) to completely pay for their various debts. This turns all of their debts (which may come from more than one creditor) into one, recurring payment plan. The philosophy is that owing one creditor a specific amount of money is much easier to manage than owing multiple creditors varying amounts of money.

There are three ways to consolidate debt:

  • Debt Consolidation Company: Debt consolidation companies are third-party, professional services designed to help everyday people merge and manage their debts. If you’re looking for a hands-off approach to consolidating your debt, a debt consolidation company is the right choice for you.

  • Personal Loan: If you’d rather consolidate your debt on your own, you can take out a large enough personal loan to pay off all of your debts at once, leaving your remaining loan debt with just the loan creditor. If you’re a disciplined DIY-er, taking out a personal loan (with a favorable APR) might be best for you.

  • Credit Card Transfer: Credit card companies love to entice new customers with low APR promotional deals, such as “0% APR for the first 12 months.” With the credit card transfer method, a debtor signs up for a promotional credit card, pays off their old creditors with the new card, and then pays off this new card before the end of the promotional APR window. If you have favorable credit, debts less than $10,000, and are financially able to pay off your debts quickly, this method is ideal.

Although each method will have its own strengths and weaknesses, we’ll review the pros and cons of debt consolidation as a whole.

Pros & Cons of Debt Consolidation


  • Easy to Implement: It doesn’t take a finance whiz to consolidate your debts. It’s pretty simple to take out a personal loan or sign up for a new credit card, but it’s even easier to contact a debt consolidation company to take care of it all on your behalf.

  • Lower Monthly Payments: It can be expensive to pay off the principal and growing interest on multiple debts every payment cycle. Luckily, loan payments are typically cheaper after debts are consolidated.


  • Debt is Never Lowered: Debt consolidation methods will never lower the amount of money you owe. You may find that your consolidated debts have a more favorable loan payment, but you’ll still owe your original principal plus interest.

  • Expensive if Mismanaged: If someone happens to make a mistake while consolidating their debt, they can quickly become burdened with fees and unfavorable APRs. For example, if a person pays off their debt using a new credit card—but fails to pay off this credit card during the promotional period—they may get hit with an astronomically high, post-promotion APR.

Am I a Good Fit for Debt Consolidation?

Debt consolidation is a great fit for people who:

  • Have multiple creditors: Debt consolidation is designed to simplify a disorganized debt situation, gathering a person’s debts into one, easy-to-pay amount.
  • Are in good standing with your creditors: If you’ve paid most of your debts on time, debt consolidation can help you retain your strong streak and avoid defaulting in the future.
  • Have a credit score of 690 or more: If you have good credit, you have a better chance of being approved for a credit card that offers a low APR promotional period. If you can manage to pay all of your debts during the promotional period, you can dodge paying high interest.

What is Debt Relief?

Also called “debt settlement”, debt relief is a strategy where a debtor hires a third-party company to negotiate directly with their creditors. Negotiating on their client’s behalf, a debt relief company will try to lower the total amount of money the debtor owes.

In order for debt settlement to work, a debt relief company needs leverage during negotiations. For 24-48 months, the debtor will stop paying off their creditors and instead focus on financing a special savings account. When enough money has been saved, the debt relief company will offer the creditor a lump sum payment less than the original debt amount.

Pros & Cons of Debt Relief


  • Lower Debt: When the debt relief strategy works, a debtor pays less money than they originally owed, up to 45% of their original debts.

  • No Success, No Charge: Debt relief companies cannot charge their customers if they aren’t successful with a negotiation. No success, no charge.


  • Credit Hit: To build up the lump sum, debtors will be asked to stop paying their creditors. As soon as a person defaults on a loan, their credit can drop dramatically.

  • Legal Action: Creditors may pursue legal action if their debtors stop paying back their loan amounts. In most cases, a debt relief company cannot protect a debtor from legal action.

  • Tax Obligation: In many cases, you'll be required to pay taxes on the amount of money that is forgiven by your creditors. For example, if you settle a $30,000 debt for $10,000, you'll probably need to pay taxes on the forgiven $20,000.

Am I a Good Fit for Debt Relief?

We do not recommend that our readers enter a debt relief program right from the start. Debt relief programs incur high risks, such as credit score drops or legal action.

That being said, debt relief is designed for people who:

  • Are not in good standing with their creditors: If a person has already failed to make consistent payments on their debts, further credit score hits will have less of an impact. In this case, debt relief could help this person reduce their total debt amount.

Final Thoughts

If you’re interested in debt consolidation or debt relief services, your next step is to research the professionals who do it the best. Lucky for you, we’ve already taken the time to find the best debt solution companies out there.

Check out our list of top-rated debt solution companies, below: